Revisiting Games of Incomplete Information with Analogy-Based Expectations

Journal article: This paper studies the effects of analogy-based expectations in static two-player games of incomplete information. Players are assumed to be boundedly rational in the way they forecast their opponent's state-contingent strategy: they bundle states into analogy classes and play best-responses to their opponent's average strategy in those analogy classes. We provide general properties of analogy-based expectation equilibria and apply the model to a variety of well known games. We characterize conditions on the analogy partitions for successful coordination in coordination games under incomplete information [Rubinstein, A., 1989. The electronic mail game: Strategic behavior under 'almost common knowledge'. Amer. Econ. Rev. 79, 385-391], we show how analogy grouping of the receiver may facilitate information transmission in Crawford and Sobel's cheap talk games [Crawford, V.P., Sobel, J., 1982. Strategic information transmission. Econometrica 50, 1431-1451], and we show how analogy grouping may give rise to betting in zero-sum betting games such as those studied to illustrate the no trade theorem.

Author(s)

Philippe Jehiel, Frédéric Koessler

Journal
  • Games and Economic Behavior
Date of publication
  • 2008
Keywords JEL
C72 D82
Keywords
  • Analogy expectation
  • Bayesian games
  • Bounded rationality
  • Coordination
  • Incomplete information
  • Betting
  • Strategic information transmission
Pages
  • 533-557
Version
  • 1
Volume
  • 62